A Balanced Industrial System
Harry Gunnison Brown
[Comments on a paper, "Some Probable Results of
a Balanced Industrial System," delivered by Thomas Nixon Carver,
at the thirty-second annual meeting of the American Economic
Association. Reprinted from the American Economic Review,
Vol.10, No.1, March, 1920]
In discussing Professor Carver's paper, I am going to take upon
myself the burden of voicing a vicarious protest. The protest to which
I am about to give expression is made in behalf of those conservative
economists who write most of our text books in the field of general or
elementary economics and in the field of taxation. It is not unlikely
that these economists fail to realize all the implications of
Professor Carver's analysis and proposals. But if they should come to
realize these implications, they could not, without inconsistency, do
otherwise than protest.
.... The gist of Professor Carver's
argument is that incomes from labor are unequal because some lines of
activity are relatively under-provided with workers and some are
relatively crowded. This means that at present we have not "a
balanced economic system." And the suggested remedies include an
educational program which will make it more easily possible for those
who are in the so-called lower ranks of labor, or for their children,
to be recruited into the so-called higher ranks.
.... It happens that there is a school
of thinkers and writers on economic subjects, to whose economic
philosophy that of Professor Carver approaches perilously close, who
emphasize another aspect of the lack of balance of our economic
system. They do not often complain that our system is out of balance
because some get little for very hard work and others much for easy
work. They point out, rather, that while the many work hard and get
relatively little, there are some who get large incomes without doing
for these incomes any work at all or rendering any service at all. I
refer, in this connection, to the single taxers. Their view is that
the rental yield of land is the result of natural advantages and of
population growth, and that the individual recipient of this rental
yield is in receipt of an income for which he is rendering and has
rendered no service to those from whom such rental income is derived.
Even though Smith, for example, has bought his land of Jones and paid
for it in earned wealth, he has, in this view, merely purchased the
privilege previously enjoyed by Jones, of getting something for
nothing from the rest of the community. And it is Jones whom he has
paid for this privilege, and not those whom he is about to exploit. So
far as they are concerned, Smith's purchase from Jones involves but a
change of parasites of which the landless exploited are the victims.
.... But the plan proposed by single
taxers as a means of restoring the balance in this regard is not
usually favored by the writers of elementary text books on economics
or by writers of books on taxation. The principal objection felt and
usually the principal objection stated is the objection of vested
rights. The New Republic phrased the sentiment in an editorial
article of June 7, 1919, in which opposition was expressed to the
single tax as a means of destroying "existing values" and of
"changing the rules of the game while the game is in progress."
Influenced by a like feeling, most professional economists have, on
this matter, contented themselves with advocating only the taxation of
future increases in the value of land. Very few of the writers of our
current textbooks urge doing more. To urge even this, however, is not
consistent with objections to destroying "existing values,"
or with objections to "changing the rules of the game while the
game is in progress." For the present value of a piece of land is
the result of an estimate of its future yield. If its future yield is
believed likely to be greater than its present yield, and if,
therefore, its salable value is expected to be larger some years hence
than now, its present salable value is also enhanced by virtue of this
expectation. But to plan, as a new program, heavy taxation of the
future increase is, in so far, to destroy the expectation and to do
away with that part of the present value which is dependent upon it. A
gradual increase in the rate of taxation on land values in general
might conceivably lower present selling values of land no more than
the prospect of heavy rates on future increases of rental yield.
Opposition to reduction of present salable values as an unwarranted
interference with vested rights can hardly, with consistency,
therefore, be raised in the case of the one plan without being raised
in the case of the other also. Let us now return to the theme of
Professor Carver's paper from which we have more apparently than
really wandered. Particularly let us note the suggestion of the
extension of publicly provided education as a means of establishing "a
balanced economic system." My contention is that Professor
Carver's proposed policy, like the single tax on the rental value of
land, would violate the principle of vested rights, would be a means
of "changing the rules of the game while the game is in progress,"
and so can not consistently be supported either by conservative
economists in general or by most of the writers of economic textbooks
in particular.
.... That the further development of
publicly supported education, not primarily to secure intelligent
citizenship as such but for the express purpose of establishing "a
balanced economic system" by more nearly equalizing opportunity,
violates the principle of vested rights, is not difficult to show.
Here, for example, is a man who has trained himself to be an
electrical engineer. He may have been born in poverty. His
opportunities for training had to be made use of by tremendous effort
and at tremendous sacrifice. Lured on, however, by the prospect of
large rewards in the engineering profession, he has made the effort
and the sacrifice that many will not and that others cannot make and
has prepared himself to enjoy these relatively high rewards. Had the
prospective rewards been less high, he perhaps would not have been
willing to undergo the incident sacrifices. He has married and has
become a parent on the strength of the probability of his continuing
to enjoy high rewards. Society has permitted him to think that he
might enjoy them and in the faith that public policy in the matter
would not change he has committed himself in the above-described and
perhaps other ways. He is still young. Greatly increased competition
will prevent his securing, in the future, the income on which he had
confidently counted, for which he made the otherwise
not-to-be-undergone sacrifices, on the expectation of which he is
committed to marriage and parenthood. Now it is proposed that for the
purpose of establishing "a balanced economic system," young
men who would otherwise have been clerks, artisans, or unskilled
laborers shall be trained for his kind of work at public expense,
shall be made his competitors, shall reduce the amount that he can
earn through all the remainder of his life. Is not this "changing
the rules of the game while the game is in progress"? Is not this
a violation of vested rights? Is not the change in policy parallel in
this regard to the change in policy which is urged by single-taxers?
It is true that there is no reduction in the value of a salable good,
since a man's earning power is not ordinarily the subject of sale and
purchase. But he does not thereby suffer a smaller injury. The
difference, indeed, would seem to be a difference between tweedledee
and tweedledum. He has not even the offsetting gain which the average
landowner would have from an application of the single tax, of a
reduction in his taxes other than on land.
.... The parallelism must be admitted.
The typical writer of American textbooks on economics and taxation
must, if consistent, refuse to indorse Professor Carver's paper. It
will not do to argue that the proposal to equalize opportunity is
likely to benefit the great majority. This is cogently argued by
single taxers with regard to the increase of taxation of land values.
If vested rights is a good enough argument in the latter case-and it
is the argument which usually counts most, whatever else may be said
against the proposal-it should be a good enough argument in the former
case, and it should be a good enough argument for conservative
economists to use against any proposed reform which seems likely to
cause loss or decreased income to any group of persons.
.... I can hardly expect that these
various considerations will be likely, in the minds of any
considerable number of professional economists, to discredit the whole
doctrine of vested rights. But if there be any economist present who
has any suspicion that this doctrine ought to be pretty much
discredited, I shall not endeavor to withhold from him my sincere
sympathy nor shall I deny my personal acceptance of a like view.
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